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E-commerce Continues to Drive Logistics Sector

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Deal activity in the UK logistics sector slowed in Q2 but contributed to the best half year since 2015 according to research by Cushman & Wakefield.

In total, 6.3 million sq ft was transacted between April and June this year, 32% down on the y-o-y total and largely due to uncertainty surrounding Brexit. E-commerce continued to dominate take-up, accounting for nearly 50% of all deals, with Amazon investing in its first ‘mega’ shed (1.5 million sq ft) in the North East.

The report also revealed that developers are addressing the demand/supply imbalance through new construction, with 8.7 million sq ft of speculative space due to reach the market in 2018. As a result, Grade A availability has risen by 18% to 23 million sq ft since the beginning of the year, with the South East and North West registering the sharpest increases (59% and 52%) over this period.

Prime annual rental growth for larger distribution units returned toward the five-year average, with Wales (9.7%) and the South East (6.0%) registering the most significant uplifts. Prime yields have stabilised at 5.2%.

In the Investment market, preliminary estimates revealed that £2.5 billion worth of logistics/distribution properties changed hands in H1, down 26% on the corresponding period in 2017. Despite the slowdown, interest in the sector remains strong, particularly from overseas investors.

The report highlighted that, regardless of Brexit, UK logistics property is expected to continue to benefit from the growth of ecommerce which reached a new high in May, accounting for 18% of total retail sales.

Bruno Berretta, UK Logistics & Industrial Research & Insight, Cushman & Wakefield, said:

“With less than a year before the UK officially leaves the EU, many occupiers have turned their attention towards Brexit and this has had a material impact on the deal flow in Q2, with fewer transactions agreed.

He continued: “Unless there is a visible breakthrough in negotiations, this uncertainty could extend into the second half of the year, when an official declaration outlining a blueprint for future UK-EU trade is expected during the quarterly EU summit in October. An upturn in activity is possible particularly given that enquiry levels for units of 50,000 sq ft and above have remained relatively stable in H1 2018 compared to H1 2017.”

In Wales, mid year take-up was on par with the corresponding period in 2017 with 1 million sq ft transacted. Requirements for larger units above 50,000 sq ft increased by 40% however there remains a shortage of Grade A / good quality Grade B space. This is unlikely to change going forward, with no speculative development on the horizon.

Rob Ladd, Partner in Cushman & Wakefield’s Logistics & Industrial team in Cardiff, said:

“Whilst we have experienced a significant rise in enquiries and interest for land from the development community the lack of sites immediately available for development means that unlike much of the UK Wales is unlikely to witness a rise in supply over the next 12 months.”